Record low interest rates have been a double-edged sword for first home buyers. They’ve made loans more affordable, but they’ve also placed a lot of upward pressure on property prices, making a deposit harder to achieve.
In an increasingly competitive property market, where even getting a foot in the door can be a struggle, young homebuyers looking for their first home may find an opportunity with family guarantee home loans.
A Family pledge loan, or Family guarantor loan, can be an attractive proposition to parents looking to support their children to get onto the property ladder. These types of loans allow young borrowers to use the equity in a family member’s home as security on a set portion of their own mortgage.
Most parents generally want to see their children get into property and are prepared to help if they can because they’re worried about the initial cost and the ability to raise a deposit. Under a Family Pledge loan, the borrowers secure a set amount of the purchase price, usually 80 per cent, against the property they are buying. The remaining 20 percent is secured against the other family member’s home.
The Family pledge security is achieved with a second mortgage on the family member’s home. In the case where there is no existing mortgage, the loan can be written with any bank that offers this type of loan. Where there is an existing mortgage, It would need to be with a bank that offers this loan type or it would need to be refinanced. However, there is also an option to use a different bank to avoid the inconvenience of refinancing if it serves no advantage.
In addition to waiving the need to raise a full 20 per cent deposit, the major advantage of the Family pledge loan is that it avoids the need for Lender’s Mortgage Insurance and allows the borrower to access the fully discounted interest rates that are currently being advertised.
A Family pledge loan has many advantages for your people trying to get a foot on the property ladder but it’s important to remember, this is only a security guarantee, the other family member is not responsible to guarantee the primary borrower’s income. They must be able to demonstrate their ability to afford to repay the entire loan amount.
If you would like more information about how a Family pledge loan can help you or your children, give Paul a call on 1300 55 22 30 or call him direct on 0466 886 252.